Tuesday, May 08, 2012

More on the Extensive Division of Labour

Paul
Walker, on his always worthwhile Anti-Dismal Blog HERE http://antidismal.blogspot.co.uk/2012/05/division-of-labour.html quotes from my post (6 May): “On
Adam Smith’s Understanding of the Significance of the Division of Labour to an
Economy Remains Neglected”, on Adam Smith’s Labourer’s
“woollen coat” example and he contributes the following most interesting extracts from
McNulty (1984), George Stigler, and others:

“When discussing Adam Smith’s approach to the
division of labour McNulty (1984: 237-8) comments, [h]aving conceptualized
division of labor in terms of the organization of work within the enterprise,
however, Smith subsequently failed to develop or even pursue systematically
that line of analysis. His ideas on the division of labor could, for example,
have led him towards an analysis of task assignment, management, or
organization”. Such an approach would have foreshadowed the much later−indeed, quite
recent−effects
in this direction by Herbert Simon, Oliver Williamson, Harvey Leibenstein, and
others, a body of work which Leibenstein calls “micro-microeconomics”. [ . . .
] But, instead, Smith quickly turned his attention away from the internal
organization of the enterprise, and outward toward the market and the realm of
exchange, perhaps because he found therein both the source of division of
labour, in the “propensity in human nature [ . . . ] to truck, barter and
exchange” and its effective limits.

As to the limits
of the division of labour George Stigler noted that "The Division of Labor
is Limited by the Extent of the Market.". Thus we have a division of
labour across the market as well as within the firm. For an interesting example
of this market division of labour consider the case of rife manufacture in Birmingham,
England in the 1860s, [o]f the 5800 people engaged in this manufacture within
the borough’s boundaries in 1861 the majority worked within a small district
round St Mary’s Church. . . . The reason for the high degree of
localization is not difﬁcult to discover. The manufacture of guns, as of
jewellery, was carried on by a large number of makers who specialized on
particular processes, and this method of organization involved the frequent
transport of parts from one workshop to another.

The master
gun-maker-the entrepreneur-seldom possessed a factory or workshop. . . .
Usually he owned merely a warehouse in the gun quarter, and his function was to
acquire semi-ﬁnished parts and to give these out to specialized craftsmen, who
undertook the assembly and ﬁnishing of the gun. He purchased materials from the
barrel-makers, lock-makers, sight-stampers, trigger-makers, ramrod-forgers,
gun-furniture makers, and, if he were engaged in the military branch, from
bayonet-forgers. All of these were independent manufacturers executing the
orders of several master gun-makers. . . . Once the parts had been purchased
from the “material-makers,” as they were called, the next task was to hand them
out to a long succession of “setters-up,” each of whom performed a speciﬁc
operation in connection with the assembly and ﬁnishing of the gun. To name only
a few, there were those who pre-pared the front sight and lump end of the
barrels; the jiggers, who attended to the breech end; the stockers, who let in
the barrel and lock and shaped the stock; the barrel-strippers, who prepared
the gun for riﬂing and proof; the hardeners, polishers, borers and riﬂers,
engravers, browners, and ﬁnally the lock-freers, who adjusted the working parts”.
(Allen (1929: 56-7 and 116-7), quoted in Stigler (1951: 192-3).)

As an aside, it
could be argued that such a decentralised methods of production would be a
guide to the way production would take place under a functioning version the
neoclassical model of the “ﬁrm”. (It could be counter-argued that this form of
production isn’t neoclassical since it is not clear that the neoclassical
separation theorem is satisﬁed.)"

Today rifle
manufacturing would be within a firm, so the advantages of the division of
labour would be captured by the firm. An interesting question would be, Why the
change? How have transaction costs changed to justify a movement from market
production to single firm production?”

These excellent
references by Paul Walker re-enforce Smith’s account of the extensive division
of labour for manufacturing woolen coats in Chapter 1 of Wealth Of Nations. I consider these examples, and others like them, a most
important characteristic of the efficacy of markets as they have developed
within commercial societies. They
are largely neglected in modern commentaries on complex market supply chains
today.

Professor Michael
Munger HERE reported his studies of modern day pin-manufacturing featuring the dramatic
decline in small pin workshops from around 18 employees in Smith’s time, first
to just a few in the 1920s and later to one or two pin manufacturers supplying whole
countries with pins from batteries of automated, computer-managed pin-making machines,
in the UK and US, and more
recently in China by the end of the 20th century. This is much like the history of UK zip
manufacturing moving to Japan in the 1960s. Allyn Young commented on the growth of the division of labour in printing in his 1928 article.

I would suggest
that studying how markets have developed and changed, utilising examples of both intensive (pin making) and extensive (woolen coat) divisions of labour, would provide a useful
background to the understanding of students and the general public of the
benefits of markets, complete with the history of government regulations, not
just for markets but for business laws and applications, and this aspects would be of more
lasting benefit than the rehearsal of political ideologies, with little
practical content. Markets
have contributed to the growth of living standards more effectively that the
failures of social democratic aspirations in the 1960s to seize the ‘commanding
heights of the economy’ and ‘national planning’, and earlier actual seizures of
markets by Marxists of various hues, (including ex-socialist, Mussolini’s 1930s ‘corporate
state’ failures).

Of course, these
valid lessons of relatively recent history are counter-balanced by the downsides
of corporate greed (epitomized by Gekko’s ‘Greed is Good’ sound-bite) and the outright
reckless risk-taking of finance and bank employees and directors, and, let us
not forget, the expense on the public purse by the never-never illusions of competing
social-democratic and center-right governments that borrowed-to-spend for decades for electoral advantage.